N10 billion rocks Celtel/Zain Board: Otudeko leads directors against Bayo Ligali, others

As published in the September 01, Issue 32. ULD by ol’Victor Ojelabi

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L-R, Oba Otudeko, Celtel logo, Bayo Ligali, Zain logo

The decision by the managing director of Zain, Mr. Bayo Ligali, to disregard the objection raised by some members of the board of directors of the company over a five year rent of a property at the Banana Island, Ikoyi, Lagos for a pricely sum of $27million (N3.1billion) has caused a bitter row among directors representing the interest of Celtel BV, the controversial majority shareholders of Zain and the minority shareholders.

The dissenting shareholders are aggrieved that rather than build its own head office with the sum, the Managing Director, was allegedly pressured by Zain’s parent company in far away Kwait to rent the Plot 2, Zone L, Banana Island property for the said sum even when Etisalat, a newly set up competitor of Zain, actually bought outrightly, a property of nearly the same size at $20.8 million.

The dissenting shareholders led by Mr. Oba Otudeko have filed papers at the Federal High Court, Lagos asking a reversal of the $27million rent for the building and a declaration to stop the re-branding of the company’s product from Celtel to Zain.

Otudeko had in different letters (which were also attached to the originating summon) to the Chairman of the Board of the company, Mr. Gamaliel Onosode, accused the majority shareholders of the company of wasting a total $58million (N6.7million) on rebranding the company within two years, adding up to a record five times the company has changed its name in its seven years existence. A sum of $30million (N3.4billion) was said to have been expended on rebranding the company from Vmobile to Celtel and just under two years thereafter, the same company is now expending a sum of $28million (N3.2billion) on its current rebranding effort which dissenting directors describe as wasteful for a company that is yet to declare dividend in the seven years of its existence.

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Seven years since Econet joined other global system of telecommunication operators to usher in a new generation of mobile telephony in Nigeria, the Econet progenitor brand had since changed ownership four times within those seven years and with each change of ownership comes peculiar disagreements that have become celebrated issues of settlement at different courts of law in Nigeria and abroad.

For most telecommunication industry watchers, reviewing the seeming protracted bickering that continues to snap at the heels of the brand since its inception could be confounding. However, an industry analyst says it is best to qualify the genesis of the unremitting crises in the company as that of the right of ownership between Econet, the first operator of the GSM license and the two others, Vodacom and Celtel BV (now Zain) that had acquired majority stake in the company in quick succession.

While the outcome of who holds the right ownership of the company is yet in view, a new and perhaps, more troubling dimension have emerged, and again, aggrieved directors are heading for the court. At issue in the present conflict on the board of the company are allegations implying breaches of the underlying principles of corporate governance.

In court papers, shareholders of the company, including Mr. Oba Otudeko, Broad Communication Limited, and Foluke Otudeko are alleging that Celtel BV, the majority shareholders in Celtel Nigeria, through its appointed directors, had consistently foisted its desires on the company without regard to the appropriateness of the action or the investment held by other shareholders.

For a company that is yet to pay a dividend to its shareholders seven years since its inception, the complaining shareholders have alleged that a sum totaling $85million, about N10billion have been expended on projects that are questionable and unjustified.

The immediate precipitation of the current crises of confidence on the board of Celtel Nigeria was the decision of Celtel Nigeria’s Managing Director, Mr. Bayo Ligali to disregard the objection of some shareholders/directors of the company to pay a sum said to be about $27million (N3.1billion) to acquire a five- year leasehold of a property at Plot 2, Zone L, Banana Island, Ikoyi, Lagos, Nigeria.

Court documents averred that when Ligali proposed a resolution, at a board meeting, for the company to relocate from its present head office location at Plot1678, Olakunle Bakare Close, Victoria Island, Lagos, Nigeria, to banana Island property, the proposal was vigorously put to debate with several directors querying the rationale for incurring such an expense. Besides, there were suggestions that it would make more sense and be more prudent for the company to expend such resources in erecting its own head office building rather than expending $27million on renting new premises.

Most of the board members also noted that the lease hold rentals proposed were prohibitively expensive and that the was not conducive. The director insisted that the shareholders who had not received any dividend from the company since inception would not approve of such wasteful expenditure.

Ligali and other representatives of Celtel BV on the board were said to have responded to these arguments against the proposed transaction was that the “Group,” had approved the transaction. By “Group” Ligali and those on his side were referring to the parent company of Celtel BV in Kuwait. The other directors were said to have made it clear that their fiduciary (the responsibility to look after someone else’s money in a correct way) duties were owed to Nigerian law and not to the so called “Group” and that the decisions with regard to the company should be taken in good faith by its board and not by any “Group” outside the company.

As a means of resolving the impasse, Mr. Gamaliel Onosode, Chairman of the board set up a committee of the board to look into the proposed lease transaction. The committee, known as the ad-hoc committee on the new head office building, was made up of four members of the board namely: Mr. Alex Otti (Chairman), Mr. Ligali Ayorinde, Ms Tsega Gebreyes and Mr. Paul Usoro.

The committee was said to have met on several occasions with the management of the company. The committee, in its report to the board, noted the discrepancy in the rents quoted in different documents presented to the board. It (the committee) indicated that while some quoted $1,050 per square meter, others quoted $1, 175 per square metre and yet some other documents had figures like $1,200 and $1,300. A management letter to the ad-hoc committee, in its report, said it considered that taxes were alien to rentals in Nigeria, thus, acting on the objection of the committee, the management came back to it (ad-hoc committee) with rent proposition devoid of the objectionable taxes of $1,050 per square metre. The ad-hoc committee also observed in its report that the proposed rent was out of tune with existing rent in Nigeria market.

What might have persuaded the committee in this regard was the revelation during the course of its investigation that Etisalat, a competitor company who had just set up in Nigeria, bought outrightly a property of over 5, 000 square metres in the same Banana Island at a price of $20.8million just about the same time Celtel’s management were negotiating to rent for five years at about $27million.

Besides, the ad-hoc committee also raised, among other issues, the potential health hazard for the occupants of the building. It is noted that the building is close to high tension wires while also observing that the building has only one lift with a maximum capacity of eight people. This, the committee, considered grossly inadequate.

In its conclusion, the committee submitted that it was unable to give final approval for the lease of the Banana Island property.

Even before the committee submitted its report to the full seating of the board, Ligali was said to have reported that he had the approval of the “Group” to go ahead and pay for the property irrespective of the outcome of the report of the committee. The dissenting directors protested. In a letter dated 7^th July, 2008 addressed to Mr. Onosode, chairman of the board, the directors, the dissenting directors alleged that the chairman “clandestinely and in collaboration with other directors proceeded to authorize the acquisition and have since made the payment of a sum of about $27million to cover the purported lease.”

In further protestation of what they describe as failure of corporate governance, the dissenting directors in the letter to the chairman, submitted that they considered the action “to have been both imprudent in gross violation of your fiduciary duties to the company and a diminution and erosion of our personal rights and interest as shareholders of the company.” They then asserted that “the board of directors is the organ entrusted with management of the affairs of the company and no director or group of directors is entitled to deprive that organ of its authority in the manner which you have done.

“The irresistible conclusion to be drawn from your action when viewed against the background of the extensive and negative findings of the committee set up to look into this matter”, the dissenting directors observed in the letter, “is that the decision to proceed with this transaction without waiting for the committee to submit its report and for the board to deliberate upon it was borne out of interest in other than those of the company.”

In the letter to Onosode which is supporting document to the sworn affidavit in the support of the originating summons, the dissenting directors also raised issues on the multiple brand names under which the company operated.

“As you must be aware”, the dissenting director observed in the letter, “the company has operated under four different brand names in its seven years of existence. First it was Econet Wireless Nigeria Limited, and then it was Vodacom Nigeria Limited, Vee Networks Limited and now Celtel Nigeria Limited. When the last re-branding to Celtel Nigeria Limited was mooted, we voted against the proposal on the basis that the acquisition of a majority shareholding in the company by Celtel Nigeria BV was still the subject of legal challenges and that it would be prudent to await the outcome of these challenges before expending resources on another rebranding exercise. Our protestation was ignored.

“Another re-branding has now been proposed at the last board meeting, this time to Zain, the new name of the parent company of Celtel Nigeria BV. Again, we had voted against this proposal and as on the previous occasion we have been outvoted.”

While noting that the benefits, if any, of the re-branding exercise would only ensure to the de facto majority shareholders whereas the burden of the rebranding in terms of costwould have to be shared by all the shareholder, the dissenting directors posited that the company had already changed its identity four times since it commenced business in 2001 and these changes of identity have been detrimental to the company business and confusing to its customers.

For dissenting directors, the cost of the re-branding exercise conducted since the purported acquisition of a majority in the company by Celtel Nigeria BV was disproportionate.

“The cost of re-branding carried out in 2006 was about $30million (N3.4billion) whilst the cost of the proposed re-brand to Zain is estimated at about $28million. All these costs are being incurred by a company that has failed to declare dividend in its seven years of existence,” the dissenting directors noted in the letter to the chairman.

The directors insisted that the current rebranding of Celtel to Zain is for the sole benefit of a shareholder group that is also in control of the technical and administrative management of the company.

They then averred that they considered the instance of the majority shareholders on proceeding with the re-branding to be unfairly prejudicial conduct which has a substantial and negative effect on the majority interest.

“If the majority shareholders feel a strong need to have the company rebranded to communicate its majority control to the public,” the dissenting directors reasoned, “there is no justification for the minority being compelled to share the burden and cost of this personal desire.”

In a veiled response to the allegation of the dissenting director, Ligali, during a chat with journalists made strenuous effort to justify the change of brand name to Zain; “Zain has expanded its network known as One Network 12 countries to 22 countries in both Africa and the Middle East. The 22 countries, according to Ligali, were across Africa and the Middle East thereby enabling the company’s customers in Nigeria to benefit from the globalization of the network.”

While highlighting the benefits of the globalization exercise, Ligali said the cost of operations would begin to go down due to the economies of scale of being a member of a large group.

What the Nigerian law says on protection of minority shareholders against illegal and oppressive conduct

Some of the section of the Company and Allied Matters Act on which the dissenting directors are pleading a redress so as to be protected against illegal and oppressive conducts are sections 300 and 303(1) which state:

Section 300: Without prejudice to the rights of members under sections 303 to 30S and sections 310 to 312 of this Act or other provisions of this Act, the court on the application of any member, may by injunction or declaration restrain the company from the following;

(a) entering into any transaction which is illegal or ultravires;

(b) purporting to do by ordinary resolution any act which by its constitution or the Act requires to be done by special resolution;

(c) any act or omission affecting the applicant’s individual rights as a member;

(d) committing fraud on either the company or the minority shareholders where the directors fail to take appropriate action to redress the wrong done;

(e) where a company meeting cannot be called in time to be of practical use in redressing a wrong done to the company or to minority shareholders; and

(f) where the directors are likely to benefit, or have profited or negligent or from their breach of duty.

Section 303(1): Subject to the provisions of subsection (2) of this section, an applicant may apply to the court for leave to bring an action in the name or on behalf of a company, or to intervene in an action in which the company is a party, for the purpose of prosecuting, defending or discontinuing the action on behalf of the company.

Jim Ovia, Zenith Bank MD, desperate

Ovia, MD Zenith Bank

Zenith Bank Plc’s Managing Director, Mr. Jim Ovia has reasons to be worried. He is the largest single shareholder of his bank, numbered at 407,232,000 units as at the bank’s year end June 30, 2007. Besides, Zenith Bank profiles subsidiary concerns that are mainly stock market focused. Overtime, Nigerian investors have specially developed an avuncular kind of respect for Ovia for his knowledge of the Nigerian stock market. The Ovia’s cult of investment followers would not, normally, bat an eye lid to place a bet on the performance of the Zenith Bank stock in the stock market.

Now, when the stock market suddenly started on a free fall, it is expected that Ovia should be worried and in consequence of the worries, become desperate as to seek ways of salvaging a snarling market that threatens to negatively affect the usually sterling performance template of Ovia’s banking group’s operations.

It was part of his effort to stem the savagery of the bearish market as it impacts his bank’s stock that Ovia, about three weeks ago urgently rallied stockbrokers to a meeting. The meeting, according to a FORTUNE & Class Weekly source, was intended by Ovia to energise confidence in the Zenith Bank stock by outlining the ongoing strategic direction of his bank to firm up the Zenith Bank stock.

“Mr. Ovia was quite unhappy with the direction the market is headed,” a stockbroker, who attended the meeting, said. “He confessed to us that investors took things to the extreme while investing during the bullish session. He spoke of how people approached his bank for loan to execute some other projects without relationship to the stock market but soon after these loans were disbursed, the people rather than go execute the project, simply headed for the stock market to invest. Things, like this, he told us, contributed to the down-turn in the stock market because investors were investing irrationally. The other result of this is that much of the bank’s fund is locked-in in the stock market,” the stockbroker told FORTUNE & Class Weekly.

Part of Ovia’s Zenith Bank’s stock rebound strategy, is, according to the stockbroker, to give impetus to the newly introduced Federal Government intervention measure of allowing publicly quoted companies to buy back their shares. (Shares buy back restriction has been waived on the recommendation of the 16-man Presidential Advisory panel that was put together to evolve policy measures that may help revive the ailing market.)

Another stockbroker present at the meeting also informed FORTUNE & Class Weekly that Ovia sought the cooperation of the stockbrokers to help drive the market’s rebound.

Zenith Bank stock had fallen from a price high of N51.15k this year to a low of N36.89k. Aside, Ovia’s Zenith Bank singularly leads the frequency of fund raising through the stock market with three public offerings, one in 2004, before the public announcement by the Central Bank of Nigeria of the recapitalization regime of Nigerian banks. And the other two following each other in succession in 2006 and January 2008.

Zenith Bank had at different times straddled the market as the most capitalized company on the Nigerian Stock Exchange.

Some stockbrokers on the sideline were, however, said to have been doubtful of Ovia’s commitment to the share buy back approach. They argued that the commercial banks, in the first instance, were responsible for the panic state the stock market had degenerated to.

“The fact is that the banks related to the stock market as a purely money making platform without any thought of developing the market,” a stockbroker said. “They simply took any advantage presented in the market for profit. I am very sure that this share buy back thing that Mr. Ovia is talking about would be done in a way that may not favour the generality of the market. Some of us think that the banks may actually wait until price of their stocks fall to the very possible flat bottom before they start talking of shares buy back. This will benefit them because they will be buying back the shares at rock bottom price. So who will be favoured, the banks or the investors? The stockbroker queried.

Let the market be (Niyi Akinsiju This Week Column)

As published in the Oct 13, Issue 38. ULD by ol’Victor Ojelabi

What dominated my thoughts all through the slur of last week’s scandalous heehaw of denials of appointment of market makers for the Nigerian stock market and a supposed N600 bail-out, was to simply carry my face, literally speaking, away from official confusion brazenly hoisted on Nigerians by people in government.

That many Nigerian investors nurse a heavy heart in contemplation of the likely consequences of the gathering threat of implosion that may throw into the abyss, their hard earned money, invested, in the first instance, through massive urging by stock market operators and regulators, that had assured of the virility of the market, should be enough to make those in authority respond to issues bordering on matters relating to investment with a stronger sense of official responsibility.

When a number of respected daily newspapers published the story of the appointment of market makers and the N600billion bail-out, a buzz had generated in the investment community. Loud arguments on the impact or otherwise of the bail-out plan all that had commenced in earnest. But it was to last a mere 24 hours. Next morning, newspapers banner headlines announced that the Federal Government, the Securities and Exchange Commission plus the Central Bank of Nigeria had not even pondered the thought of a bail-out. It was an anti-climax, a cold water drenching anti-climax at that.

Yet, I reasoned that Nigerians deserve an explanation, an official explanation for the recklessness. Of course, this has nothing to do with the media houses that published the stories, as a journalist, I should know. The papers quoted sources at the Nigerian Stock Exchange, the story in fact, revolved around the conclusions of a marathon meeting of the Council of the Nigerian Stock Exchange.

It was not enough to simply make a rebuttal of the story, the appropriate authorities should have gone farther to inform the public of an intent at investigating the source of the rumour (as the news turned out) and of course, assure the pensive investing public of the seriousness attached to the investigation. At times like these, information has become sacred and the sanctity of it should not be eroded. In the first instance, it was the lack of credible information and perhaps, more troubling, the inclination for close circuiting that heckled the Nigerian stock market into the awkward state that it had degenerated.

Openness rules the market; it is at the heart of investors’ confidence, the deficiency of which has maligned the status of the market. It is sad that we won’t, in the character of institutional arrogance that had defaced relationships with the public, get to hear anything about the shenanigan that led to the breaking of that news. You can imagine what it would do to investors’ confidence to know the motive and goal of the people that held the meeting where resolutions concerning market makers and bail-out plan were made.

And to think that the Council of the Nigerian Stock Exchange was at the centre of these suggestions should be humbling. Though the SEC had announced it had nothing to do with it, yet, as the apex regulatory authority of the market, I guess the SEC should ask Prof. Ndi Okereke-Onyuike what her intentions were and why she did not get the input and approval of the appropriate authorities before sneaking the resolutions of her Council meeting to the public place.

More rubbish imagination of some funny, less thinking officials would still certainly assail us in these trying times. Policies would be made in the heat of anxiety without the corollary aggregation of the implementation procedure, it is the way of Nigerian aficionados, and the stock market is not insulated from this. The frustration of expecting so much from the policy-measures introduced by the egg-heads that gathered in Abuja these past August 26, is hurting enough. If I have my way, I ‘ll suggest that they just let this market be, and for the good Lord’s name sake, will somebody tell those big people that the one per cent limit on the fall of stock price is doing more harm to the market?

Let the market fall of its free will, it’s a reflection of the opinion of investors of the market and clearly attests to the value the market should be, as all things natural respond, when it gets to the nadir, it will generate an upward drive of its own volition.

I personally can’t fathom the reason for the hysteria that seems to consume everyone about the present state of the market. We all saw it coming, but it suited everybody to chorus the great potential of the market when the run was going good. Turning a recalcitrant deaf ear to the admonition of concerned people that kept reminding us of the manipulations and many under-hand, under-table and a whole regime of under-something deals that were killing the market in instalments.

So, we have a burnt pot of porridge, just too bad, but then, even with the gathering storm of continued conjectures of global capital markets impacting on the Nigerian market, I still dare to insist that if the regulators can be more open in dissemination of information to the investing public, the worrisome situation of the market, can still stabilise. Nigeria and many other African countries are not in the range of the seismic undercurrent, that is at present, rocking the global market; but we can only be assured of our revival if those fiddlers and meddlers in the hierarchy of regulators, can be more discerning.

For the retail investors, many of whom, I understand, had taken flight to cash in hand or the bank, you’re doing something called market timing. It’s an implied statement that you’ve figured out the right moment to get out of stocks and will also know the right time to get back in.

The truth of the situation is simple enough; the right time to move out of stocks was a year or so ago, before various stock indices the world over, fell by one-third or more.

If you missed that opportunity, you’re hardly alone. But if you sell now, you’ll be locking in your losses. And once you’re in cash, there isn’t much upside. In fact, with interest rates low, you’re likely to lose money in cash, because inflation will probably eat up the after-tax returns you earn from a savings or money-market account.

A guarantee of a small loss may sound good right now. But if you’re not bailing out of stocks once and for all, how will you know when it’s time to get back in? The fact is, any peace of mind you gain by being on the sidelines now will turn into a migraine once you see how much you can harm your portfolio over time by missing just a bit of any rebound.

H. Nejat Seyhun, a professor of finance at the Ross School of Business at the University of Michigan, put together a study in 2005 for Towneley Capital Management, where he tested the long-term damage that investors could do to their portfolios if they missed out on the small percentage of days when the stock market experienced big gains.

From 1963 to 2004, the index of American stocks he tested gained 10.84 per cent annually in a geometric average, which avoided overstating the true performance. For people who missed the 90 biggest-gaining days in that period, however, the annual return fell to just 3.2 per cent. Less than one per cent of the trading days accounted for 96 per cent of the market gains.

This fall, Javier Estrada, a professor of finance at IESE Business School in Barcelona, published a similar study in The Journal of Investing that looked at equity markets in 15 nations, including the United States. A portfolio belonging to an investor who missed the 10 best days over several decades across all of those markets would end up, on average, with about half the balance of someone who sat tight throughout.

So moving to cash right now is just fine as long as you know precisely when to get back into stocks (even though you didn’t know when to get out of them).

At some point, stocks will indeed fall enough that investors will remove the money from their mattresses and put it to work, causing prices to rise significantly. But, as Bonnie A. Hughes, a certified financial planner with the Enrichment Group in Miami, put it, there won’t be an e-mail message or news release that goes out when this is about to happen. It will be evident only afterward, on the few days when the market surges.

Expert Decries Bank Charges On Returned Cheques As Illegal

As published in the Oct 13, Issue 38. ULD by ol’Victor Ojelabi

Mr. Ori Adeyemo, a forensic accountant and crusader for streamlined bank charges, has decried bank charges on returned cheques and described the fee deducted from accounts in consequence of returned cheques as illegal.

“It is trite that by virtue of Section 10, subsection of the defunct Central Bank of Nigeria (CBN) Bankers’ Tariff, a bank is allowed to charge N1,000 for a returned corporate cheque whilst debiting N300 for a returned individual cheque (to be borne by the drawer),” Adeyemo said.

“It is also true that by the provision of Section 11, subsection 6 of the subsisting CBN Guide To Bank Charges effective January 01, 2004, a returned cheque attracts 0.5 per cent of amount, maximum N5,000 (to be borne by the drawer).

“In both cases,” Adeyemo argued, “the CBN guidelines stipulate that only the drawer of a cheque should be penalised for a returned cheque and not the supposed beneficiary (who never took value for consideration anyway.) Unfortunately, we all know that this situation is not true in Nigeria as banks whimsically charge both the drawer and drawee for a returned cheque, thereby amounting to double-jeopardy especially for the drawee who never took any benefit.”

Affirming the contradiction in the statutes relating to fees sanctions as a result of returned chques, Adeyemo said: “I must emphasise that the CBN is wrong to have inserted returned cheque fee into the defunct Bankers’ Tariff as well as the subsisting CBN Guide To Bank Charges being in crass breach of the Dishonoured Cheque (Offences) Act of May 20, 1977, which makes it a nullity for the following reasons:

a. That a returned cheque is a criminal offence and not a civil offence.

b. That only the injured party (that is, the supposed beneficiary) has a right to complain about a returned cheque to the Nigeria Police or better still, the Economic & Financial Crimes Commission (EFCC) and definitely not a bank.

c. Returned Cheque Fee is a penalty which only a court of competent jurisdiction can impose on a citizen of the country.

d. No party to a contract can impose any form of penalty/fine on other parties to a contract as doing so is repugnant to natural justice.

e. That a bank has no special or pecuniary interest in a returned cheque being just a clearing vehicle for a deposited cheque.

f. That Section 9 of the subsisting CBN Guide to Bank Charges, clearing of cheque or draft in Nigeria is free. Moreover, no bank can charge any fee for collecting any deposit in Nigeria.

g. That according to the Dishonoured Cheque (Offences) Act of May 20, 1977, upon conviction; an individual is liable to two-year jail term without an option of fine while for a body corporate a penalty/fine of not less than N5,000.

h. Only the Attorney-General of a state (without excluding the Attorney-General of the Federation) has a right of criminal prosecution of a defaulter and definitely not a bank.

i. That Section 25 of the Interpretation Act (which provides that a person shall not be punished twice when guilty of an offence under more than one enactment) shall apply in respect of offences under this act.

j. Since this Section 11.6 of the subsisting CBN Guide to Bank Charges as it relates to a bank charging its customer Returned Cheque Fee is in breach of the Dishonoured Cheques (Offences) Act being a legislation of the National Assembly, the Dishonoured Cheques (Offences) Act will prevail.

“In simple language, I am saying that since a bank is not a party to a returned cheque, then such bank cannot lay claim to it. We should cast our mind to the law of privities of contract wherein it is clearly stated that only parties to a contract can sue for the enforcement of a contract and not even those in whose interest the contract was made,” Adeyemo insisted.

“You will agree with me that the initial beneficiary of a clearing cheque is the bank that went to clear the cheque that should have taken custody value for the drawee but that alone does not give room for the bank to lay any claim on the money since the bank is not the real beneficiary of the fund but just a mere custodian.

“Therefore, I cannot but submit that the present CBN Guide to Bank Charges, is fraught with illegalities to the crass detriment of bank customers thereby allowing banks to smile away at all times, leaving the customers short-changed. In fact, this was one of the issues I had wanted to address in May 2008 at the House of Representatives’ probe of the banking industry until it was fraudulently compromised by the banking cabal working in concert with the then leadership of the House Committee on Banking & Currency.”

Adeyemo argued that on account of the subsisting convention of fee sanctioning for returned cheques, he had been demanding a review of the CBN Guide to Bank Charges: “I cannot but request for a thorough review of the CBN Guide to Bank Charges wherein the opinion of every stakeholder in the industry will be accommodated as against the present one which was drafted by Mr. Jim Ovia, the Zenith Bank Plc Managing Director and so wholesomely adopted by the CBN without any input from the bank customers, thereby skewing the graph in favour of the banking industry.

“In simple words, I submit that it is totally illegal for any Nigerian bank to penalize a customer for a returned cheque, as doing so will translate to the fact that the banks have become laws unto themselves, having illegitimately taken over the job of the judiciary,” Adeyemo submitted.

Millionaire Bank Customers In Dilemma Over EFCC New Rule

As published in the Sept. 28, Issue 33. ULD by ol’Victor Ojelabi.

Until this past July, many commercial banks operating in the country had merely paid perfunctory attention to the demands of the Money Laundering (Prohibition) Act 2004 which require banking institutions to display notice in a conspicuous place directing the attention of customers and the general public to the dangers associated with money laundering and other financial crimes. And the display of notices in the banking hall to the effect that the bank is compelled to report any transaction above N1000,000 in the case of individuals and N5000,000 in the case of a corporate body to the Economic and Financial Crimes Commission[EFCC].

It would seem, however, that a new teeth has been given to the implementation of the demands of the 2004 Act which formally makes defined acts of money laundering a sanctionable offence, both to infracting customers and bank staff that may have hidden details of transactions from the EFCC as required by law.

Reports gathered from banking halls across the country indicated a rather confusing scenario between banks customers and staff that now insist on applying the procedures for filing money laundering returns for sums above the stated limits by customers.

A case that exemplifies the new zeal with which the banks’ staff apply the letters of the law is one that has caught the fancy of enforcement officers from the Economic and Financial Crimes Commission in Abuja.

According to an impeccable source in the Commission, a real estate agent had acted in his customary role as an intermediary in the sale and purchase of a property in the outskirt of Abuja, the Federal Capital Territory. The buyer, Fortune and Class Weekly source said, wrote a cheque for N25million to the real estate agent to cover the asking price of the property, the agent, in turn, deposited the cheque in his bank account so as to fund the account of the property owner after he would have deducted his commission.

Matters, however, got to a head when the agent got to the bank to and attempted to withdraw money from his account. Our source revealed that at this point, officials of the bank requested an interview with the agent and asked him the source of the cheque.

“The real estate agent explained his role in the property sell and buy transaction, thus asserting that the money belonged to the owner of the property that had sold it off through him.” Fortune and Class Weekly source said.

Complications over a seemingly simple banking transaction arose when the agent was asked to come along with the property owner who was expected to also explain how he came about funding the construction of the building and the property buyer that gave the cheque.

“Nobody had come forward till now,” Fortune and Class source revealed. “We are, however, working on the theory that the property owner and buyer may be civil servants or other individuals that may not be able to explain their sources of income or justify their income level to engage either in constructing or buying the house.” Fortune and Class source added.

Another instance of the new face of the implementation of the Money Laundering (Prohibition) Act 2004, was enacted recently at an Ikeja, Lagos State branch of GT Bank after a customer sauntered into the banking hall with intent at saving a sum of One million Naira cash in his account. Soon after he presented and his cash to the cashier and the money counted, hell was let loose when a shouting match ensued between the customer and the cashier.

The bone of contention was the insistence of the cashier that the customer would have to fill a form where part of the questions he would have to answer related to how he made the money he was depositing.

The angry customer had protested the absurdity of such question and continued to wonder aloud if he was not old enough to be able to make such money. Despite explanation by other staff of the bank, the customer was persuaded to fill the form as required.

A banking source confided to Fortune and Class that commercial banks may have become more adamant in demanding detailed explanations of sources of money to be deposited and, sometimes, to be withdrawn, as a result of a vow by the Chairman of the EFCC, Mrs Farida Waziri to check unprofessional conducts of some banks in cases of money laundering…”Since we sanitized the banks I thought that we have had respite but what is going on through the banks is so bad. Even some banks use the stock exchange to perpetrate so much corrupt deals. Corrupting the same system that made them who they are.” The EFCC Chairman had said while responding to remarks by the Director-General of the Inter Government Action Group Against Money Laundering in West Africa (GIABA) Dr. Abdullahi Shehu.

Such threats and others contained in various circulars from the CBN may be teaching bankers to become more alert and conscious to their roles as demanded by the Money Laundering Act. The CBN, had, in one of its circulars to commercial banks threatened to evoke the sanctions inherent in section6(9) of the Money Laundering Act 2004 and Section 44 (2) (d) of BOFIA 1991 as amended. The sanction for failure to comply with the provisions of the Act establishes a fine of N1000,000 for each day during which the offence continued for first offenders, while subsequent offences will also attract one-year suspension or a termination of appointment, as the case may be, in addition to prosecution under the law.

Cancellation of uniform year-end saves banking sector …bank stocks now best buys – experts

As published in the Sept. 28, Iss. 33. Site Admin. ol’Victor Ojelabi

The idealism of Central Bank governor, Prof. Chukuma Soludo, did transform the nation’s banking industry. From a motley crew of pretender-financial institutions, Prof. Soludo presented to the nation on the first day 2006 a manageable community of 25 banks that have passed his test of the N25billion mark.

On the attainment of this feat, believed before 01-06-2006 to be an impossibility, the Nigerian banking public celebrated the Professor of Economics and, of course, got inebriated with the promise of greater things to come from the banking sector. Banking experts caught on to propelling excitements steaming from the office of the CBN governor, “with more money from consolidation, banks were going to drive the active sector” was the chorus.

The industry did make a jump to new levels of growth, Nigerian banks, have since 2006 been involved in financing billion plus naira projects in the hefty oil and telecommunications sectors, that was unheard of in the pre-consolidation era. Personally, I am enamoured with the gleam of glamour and high tech platforms on which Nigerian banks dispensed financial services to the public.

The banking consolidation certainly has an impact in galvanising a trendier banking culture and it shows in the lifestyles of bankers and their institutions that have become celebrities in the public place with each competing for media attention in a rather morbid claim to the nation’s number one ranking in the banking sector. So much that Nigerians were regaled with figures of banks that had crossed the one billion dollar shareholders’ fund, some other countered on their multi-trillion naira asset and all that. For the naïve watcher of the banking sector, the easy conclusion would be a sector that is vibrant on all measures of indices. The investing public was apparently taken in, for good reasons too, banks had become the main drivers of the Nigerian Stock Exchange, accounting for the biggest chunk of trading activities in the market in terms of volume and value.

All these together must have emboldened the CBN governor to push farther his idealistic template to ensure a banking industry that can compete with any other across the world on credibility of operations and status ranking in translating turnover to profit. Unfortunately, this altruistic illusion was the undoing of the CBN governor. Soon after he announced that the nation’s banks must all adopt the same December year-end, all manners of strange things started happening.

The same year-end implies that each bank would stand alone in presenting report of activities to investors. This would provide the basis for comparing the profile of banks against one another and of course, lend credit to claims by each bank.

Then a state of near stultification of the ordinary banking operations commenced. Banks started a desperate hunt for deposits to shore their vaults in the run up to the year-end deadline. To secure these deposits, banks were ready to obligate themselves to very high interest rate. There were clear signals that the economy was grinding to a halt as banks lending activities were thrown to the back offices in preference for deposits drive.

The inter bank rate, the rate at which banks lend themselves money sprinted beyond the year on year average, there were suspicion that banks needed to use this borrowed funds from other banks to make their books look good.

The signs of trouble were noted in the CBN Quarterly report but not many gave much thought to it. The report notes that “With tight liquidity conditions in the money market, following the upward review of the MPR from 9.0 to 9.5 per cent in December, 2007, deposit money banks (DMBs) accessed the CBN lending facility more frequently to square up short-term positions. Consequently, a cumulative sum of =N=8,658.91 billion was granted to DMBs on overnight basis in the review period, compared with =N=523.91 billion in the preceding quarter.”

The report further asserts that “available data indicated mixed developments in banks’ deposit and lending rates in the first quarter of 2008. With the exception of the average savings deposits and seven-day savings rates which, fell by 0.26 and 0.16 percentage points to 2.97 and 5.38 per cent, respectively, all other rates on deposits of various maturities rose from a range of 7.75 9.90 per cent in the preceding quarter to 9.48 10.71 per cent. On the other hand, the average prime and maximum lending rates fell by 0.44 and 0.07 percentage points to 16.05 and 18.17 per cent, respectively. Consequently, the spread between the weighted average deposit and maximum lending rates widened from 15.01 percentage points in the preceding quarter to 15.20 percentage points. On the other hand, the margin between the average savings deposit and maximum lending rates narrowed from 10.77 percentage points in the preceding quarter to 10.31 percentage points. The increase in interest rates during the review quarter was attributed to the upward review of the MPR in December, 2007. At the inter-bank call segment, the weighted average rate, which was 8.25 in the preceding quarter, rose to 10.30 per cent, reflecting the liquidity squeeze in the inter-bank funds market.”

The CBN was rather being merely academic with its reasons for the lending rates’ differentials and liquidity squeeze, by the time the reports for subsequent quarters are made public the spiking of credit relationship between banks on one hand and with the CBN on the hand, would tell of the tension that would have run the banking sector aground if the CBN had gone ahead with same year-end policy.

The unusual tempo of activities in the sector eventually got the CBN scared of the dire consequences if it insisted on going ahead with the same year-end policy. It was obviously a beaten Prof Soludo that informed the nation of the CBN’s decision to cancel the same year-end policy as a result of what the apex bank described as observed unhealthy trend/development in the industry whereby some banks were mobilizing deposits at very high interest rates that were inconsistent with economic fundamentals which was becoming a threat to market stability.

The CBN confirmed in the public announcement that it was compelled to cancel the same year-end policy “in the light of the developments in the economy and the misplaced perception that the interest rate trends are linked to the requirement of a common year end and therefore decided that the year end will no longer be a requirement. Consequently, each bank and discount house is at liberty to adopt its own accounting year end as it deems appropriate and can inform the CBN accordingly.”

The announcement has certainly calmed the brewing storm in the sector, so it is back to business as usual. Banks will continue to declare enormous profit, banks would continue to inundate the investors with sparkling financial positions and because banks drive the national economy in an awkward inverse relation to the active sector that should, in the ordinary sense of economics, drive the national economy, banks would continue to make more money than any other sector of the economy. This is why any investor wishing to make the fast break in the stock market should now start hunting for banks’ stocks. With the exception of Unity Bank and Wema Bank that are currently on suspension, all consolidated banking stocks listed hold great prospects, principally because bankers know how to play the Nigerian economy better than any other sector player. This is a lesson in fundamental consideration in investment decision making.

WE ARE VINDICATED

Since mid-2007, we had stridently made calls for reformation of the Nigerian stock market, we had published stories of infractions that threaten the integrity of the market, we had revealed manipulative antics of some operators and their collaborators, and had asked for more pro-active monitoring and supervision of the market, especially in transactions involving moribund companies. Some had hailed our courage for revealing the truth, some had vilified us, and some did not even pay any attention to our positions. But a five-month bearish run in the market has justified our position calling on all market players to play by the rules. The roll-out of emergency measures to put in abeyance the unwholesome domination of the capital market by the bears, have justified our principled position.

Yet, the surveillance continues.

Finally! Arisekola takes control at FirstBank

Arisekola - a turban in the bank?

As published in the Sept. 28, Issue 33. Uploaded by ol’Victor Ojelabi.

Public attention, especially in the investment and banking sectors, have been riveted on Mr. Sanusi Lamido Sanusi, FirstBank Plc’s Executive Director, Risk and Management Control, whose appointment as the Managing Director-designate of FirstBank Plc was announced about two weeks ago.

For insiders of the bank, however, the board’s ratification of the appointment of Sanusi may not be without the deft hand of business mogul, Alhaji Alao Arisekola. Top level insiders confided that the elevation of Sanusi, an economist turned banker, was in consequence of a balancing act necessitated by Arisekola’s desire to further his interest in the bank.

A respected source in the bank’s senior hierarchy observed that Arisekola who holds substantial interest in FirstBank may have, by rallying the support of members of the board for the appointment of Sanusi who takes over from Mr. Moyo Ajekigbe who retires as the bank’s Managing Director in December 2008, he (Ariskola) would have positioned Dr. Ayoola Oba Otudeko, currently a non-executive director of the bank to assume the influential office of the Chairman of the Bank’s Board of Directors.

“Though FirstBank is not inclined to consider issues in appointment or other decision making process on grounds of ethnic origin or affiliation, it is obvious that a bank with the shareholding character and size of FirstBank, creating geographic balance in official appointment and occupation, may be necessary once in a while,” a source in the bank, said.

“Of course, in the appointment of Salisu, he is highly exposed to the rudiments of modern banking and therefore deserving of his designated posting, but again, don’t forget that there are other highly skilled executives in the management cadre of the bank who could have been made the Managing Director, but it would not have been appropriate in the circumstance because Alhaji Umaru Mutallab, the current Chairman of the Board of the Bank, who is of Northern Nigerian extraction like Sanusi, would also be stepping down from that capacity as soon as he attains the age of 70,” Fortune and Class Weekly source, said.

According to our source, Arisekola, who is believed to be the name behind the large shareholding indirectly held by Oba Otudeko in the bank (Otudeko holds the largest shares of the bank, 2.46 per cent, indirectly, before the bank’s May-June 2007 public offer) decided to show his hands in who becomes who in the bank’s hierarchy.

“It is natural that if he wants his man (Otudeko) who hails from the Southwest to step into the shoes of Mutallab, the office of the bank’s Managing Director must, of course, go to the North,” Fortune and Class source, reasoned.

“It’s like taking control from behind the scene which I really don’t have any problem with. The Managing Director-designate is a superb professional and has shown himself to be a worthy scholar with an active mind on public and religious issues. I tell you, this may be the next level of evolution of CEOs of large private sector holdings like FirstBank. CEOs that are not just limited to their professional callings but are willing to contribute to the debate on developmental and other ancillary issues in the country, this, I believe from my reading of Mr. Salisu, is his inclination. On the other hand, If eventually Oba Otudeko assumes the office of the board’s chairman, I am assured of a well-heeled board room giant as the corporate governance face of the bank. Now, that is like benefitting from the best of two worlds,” another Fortune and Class Weekly source said.

Meanwhile, a statement from the bank has hailed the succession plan of the bank as being a furtherance of the bank’s corporate governance practice. The statement notes that Sanusi will be understudying Ajekigbe, with a view to assuming office in a seamless manner. “As is well known, the bank’s corporate governance posture has won it much respect and awards both locally and internationally, the appointment is expected to take effect from January 1 2009.”

The new managing director is coming from a background of championing remarkable developments in the bank’s enterprise, risk and management control mechanisms. He was General Manager at United Bank for Africa Plc (UBA), where he anchored the transformation of the previous Credit Risk Management Division into an Enterprise-Risk Management sector and spearheaded UBA’s Basel 2 focus by establishing the framework, policies, processes and systems necessary for compliance with the guidelines of the new capital accord.

Sanusi graduated with a B.Sc. in Economics from Ahmadu Bello University (ABU), Zaria in 1981 and was later in the M.Sc class and started his working career in academics, teaching undergraduate Economics (1983-1985) at the Ahmadu Bello University. He then proceeded to a banking career, first with ICON Limited (merchant bankers), where in a period of about seven years he gained wide experience in Issuing House activities, Financial Advisory Services, Privatization, Debt-Conversion and Credit and Marketing, before joining UBA.

Sanusi is expected to provide reinvigorated leadership taking the bank to the next level, drawing from the vast experience of Mr. Ajekigbe, an industry icon in his own right. The seamless transition will ensure that FirstBank remains focused and maintains its leadership position in the industry.

Mr. Ajekigbe is retiring at the impressive peak of an outstanding career with FirstBank, spanning over 30 consecutive years, the last six of which he is serving meritoriously as Managing Director/Chief Executive. He has been able to stabilize the bank from the crisis situation which he inherited on his appointment in 2002, thus reinforcing the confidence of the bank’s diverse stakeholders and the global financial public.